2025 (11) TMI 876 - AT - Customs

Appeal dismissed: Export goods mis-declared, confiscated and penalised; Additional Director DRI competent under s.124 and s.114(iii)

CESTAT New Delhi - AT dismissed the appeal, holding the export goods were mis-declared and rightly confiscated and penalized. The tribunal found the ... Levy of penalty on the appellant u/s 114(iii) of the Customs Act 1962 - mis-declaration of export goods - Additional Director, DRI is the proper officer to issue an SCN or not - HELD THAT:- There is no dispute that the export goods were mis-declared and hence they were liable to confiscation and have been confiscated. The appellant’s submission that the Additional Director DRI was not the proper officer to issue the SCN in view of the judgment in Canon India [2021 (3) TMI 384 - SUPREME COURT] cannot be accepted for two reasons. Firstly, that judgment was on the question of issuing an SCN under section 28 of the Act to demand duty not paid and NOT on the question of issuing an SCN for confiscation and penalties u/s 124 of the Act. Secondly, the decision in Canon India was subsequently reviewed by the Supreme Court in a review petition filed by the Revenue. The appellant’s submission that it was not required to examine the contents of the goods while filing the Shipping Bill would have been correct if the appellant had filed the Shipping Bill in good faith on an authorization from and having been engaged by the exporter. This is a case where the exporter was nowhere in picture and at the behest of Shri Najib, the appellant filed benami (pseudonymous) Shipping Bills in the name of KKS. Therefore, the appellant was fully responsible for any fraud or mis-declaration in such shipping bills because it is a case of attempt by Shri Najib and the appellant to mis-declare and export goods which resulted in their being confiscated. The appellant’s third contention that since a penalty has already been imposed under CBLR, no penalty can be imposed under section 114 (iii) of the Act also cannot be accepted. The penalty under CBLR for violation of various Regulations under CBLR and it has nothing to do with acts or omissions which rendered the export goods liable to confiscation for which penalty is imposable under section 114 of Act. There are no force in the appeal filed by the appellant - appeal dismissed. ISSUES PRESENTED AND CONSIDERED 1. Whether an Show Cause Notice issued by the Directorate General of Revenue Intelligence through the Additional Director is invalid insofar as it seeks confiscation and penalties under section 124 and section 114(iii) of the Customs Act on the ground of the Supreme Court decision relating to issuance of notices under section 28 of the Act. 2. Whether a customs broker who files shipping bills in the name of a purported exporter (without authorization and at the behest of a third party) can be held liable under section 114(iii) of the Customs Act for mis-declaration and attempted export of goods, including where goods were received by the broker in sealed condition. 3. Whether imposition of penalty under the Customs Broker's Licensing Regulations (CBLR) for breach of regulation(s) precludes imposition of penalty under section 114(iii) of the Customs Act for the same underlying facts that render exported goods liable to confiscation. ISSUE-WISE DETAILED ANALYSIS Issue 1: Validity of SCN issued by Additional Director DRI for confiscation and penalties under section 124/114(iii) Legal framework: Procedure for issuance of SCN for recovery of duty (section 28) and for confiscation/penalties (section 124 and section 114(iii)) under the Customs Act; statutory competence of DRI and its officers to investigate and issue notices in respect of smuggling, mis-declaration and related penal consequences. Precedent Treatment: The appellant relied on a Supreme Court ruling limiting the issuing authority for SCNs under section 28. The Court distinguished that precedent because it concerned notices under section 28 (demand of unpaid duty) and not notices for confiscation/penalties under section 124/114. The earlier decision was also noted to have been subject to a subsequent review by the Supreme Court. Interpretation and reasoning: The Court treated the scope of the prior Supreme Court decision as confined to proceedings under section 28 and not applicable to confiscation/penalty proceedings under section 124/114. The competence of DRI officers to investigate and issue SCNs for confiscation and penalties was therefore not negated by that decision. The review of the prior decision by the Supreme Court further weakened the appellant's reliance on it. Ratio vs. Obiter: Ratio - The limitation derived from the prior decision does not extend to SCNs issued for confiscation and penalties under sections 124/114; DRI (through appropriate officers) may issue SCNs in such matters. Obiter - Observations concerning the review of the prior decision are ancillary to the core holding. Conclusion: The SCN issued by the Additional Director, DRI, for confiscation and penalties under section 124/114 was not invalidated by the cited Supreme Court precedent and stands as legally competent in the facts of this case. Issue 2: Liability of customs broker who filed benami/pseudonymous shipping bills without exporter's authorization - duty to verify exporter existence and contents of goods Legal framework: Section 114(iii) of the Customs Act imposing penalty for acts/omissions that render goods liable to confiscation; regulatory duties under the Customs Broker's Licensing Regulations; general principle of mens rea/participation in fraudulent exportation; obligations of a customs broker when filing shipping bills on behalf of an exporter. Precedent Treatment: No controlling precedent was applied to absolve a broker who files shipping bills without authorization; the Court treated established principles that culpability depends on participation in or facilitation of the fraud. Interpretation and reasoning: The Court accepted that a broker who files shipping bills in good faith on authorization from the exporter and engaged by the exporter may not be required to examine sealed consignments or independently verify goods. However, where the broker files benami/pseudonymous shipping bills at the behest of a third party while the purported exporter is 'nowhere in picture,' the broker cannot claim innocent reliance. In such circumstances filing of shipping bills constitutes active participation in the attempt to mis-declare and export goods. The absence of authorization and the involvement of a third party created a duty on the broker to verify the legitimacy of the transaction; failure to do so establishes responsibility for the fraud and renders the broker liable under section 114(iii). Ratio vs. Obiter: Ratio - A customs broker who, without authorization from and engagement by the true exporter, files shipping bills at the behest of a third party and thereby participates in benami/export fraud can be held liable under section 114(iii) for acts that render goods liable to confiscation. Obiter - General statements that brokers filing in good faith on exporter authorization need not physically inspect sealed goods serve as contextual guidance. Conclusion: The broker in this case, having filed pseudonymous shipping bills without authorization and at the behest of a third party, was properly held responsible for the mis-declaration and penalized under section 114(iii); the sealed condition of goods does not absolve a broker who participated in a benami scheme. Issue 3: Whether penalty under CBLR precludes penalty under section 114(iii) of the Act for same underlying conduct Legal framework: Penal and disciplinary scheme under the Customs Broker's Licensing Regulations (administrative penalties for contravention of licensing regulations) vis-à-vis statutory penal provisions under the Customs Act (penalty for acts rendering goods liable to confiscation). Precedent Treatment: The Court treated the two regimes as distinct, governing different classes of misconduct and different consequences, and did not find authority to treat regulatory penalty as mutually exclusive with statutory penalty for confiscation-related conduct. Interpretation and reasoning: The Court reasoned that penalties under the CBLR address violations of licensing regulations (e.g., regulatory duties imposed upon brokers), while penalties under section 114(iii) of the Customs Act address substantive acts or omissions that make goods liable to confiscation. Because the subject-matter and legal consequences of the two provisions are different, imposition of a regulatory penalty does not bar imposition of a statutory penalty for the underlying conduct that caused confiscation. Ratio vs. Obiter: Ratio - Penalty imposed under CBLR for breach of licensing regulations does not preclude separate imposition of penalty under section 114(iii) where acts or omissions render goods liable to confiscation. Obiter - None material beyond the distinction between regulatory and statutory penalty schemes. Conclusion: The Tribunal correctly held that the existence of a penalty under CBLR did not prevent the imposition of penalty under section 114(iii) of the Customs Act for the mis-declaration and attempted export that led to confiscation. Overall Conclusion The appeal challenging imposition of penalty under section 114(iii) was dismissed: (a) the SCN issued by the DRI officer was valid for confiscation/penalty proceedings; (b) a customs broker who filed benami/pseudonymous shipping bills without authorization and at the behest of a third party is liable under section 114(iii) despite receiving goods in sealed condition; and (c) imposition of regulatory penalties under CBLR does not bar imposition of statutory penalties under section 114(iii) arising from mis-declaration and confiscation.